01 / ANALYSIS
Overview of the Case
A section 122(5A) amended assessment must rest on a demonstrable error prejudicial to revenue. The Lahore High Court rejected a revenue reference challenging tribunal relief on bad debts, vehicle depreciation and related deductions where the department did not establish legal or evidential error.
02 / ANALYSIS
Brief Facts
Asia Ghee Mills, a private company manufacturing vegetable ghee, oil and allied products, filed its income tax return for tax year 2023. The return was treated as a deemed assessment under section 120 of the Income Tax Ordinance, 2001.
Tax authorities initiated proceedings under sections 122(5A) and 122(9), and issued an amended assessment dated 16 June 2025 raising a tax demand of Rs 296,293,357.
The Commissioner Inland Revenue (Appeals-II), Multan, upheld disputed additions and disallowances on 25 February 2026. On 16 March 2026 the Appellate Tribunal set aside the relevant findings concerning bad debts, vehicle depreciation and associated tax adjustments. The department brought a reference under section 133.
03 / ANALYSIS
Questions of Law
- May section 122(5A) be used for an open-ended search to discover whether an assessment is erroneous?
- Could the department disallow bad debts and depreciation without identifying deficiencies in the taxpayer's supporting records?
04 / ANALYSIS
The Court's Answers
May section 122(5A) be used for an open-ended search to discover whether an assessment is erroneous?
Answer. No. There must first be a demonstrable error and prejudice to revenue. Officials may investigate an identified error, but cannot use notices and inquiries to manufacture the threshold for assuming amendment jurisdiction.
“cannot be converted into an unrestricted authority to reopen a deemed assessment”
Could the department disallow bad debts and depreciation without identifying deficiencies in the taxpayer's supporting records?
Answer. The High Court found no legal basis to interfere with the tribunal's conclusions. The revenue authority did not identify particular defects or falsity in the submitted evidence or demonstrate that the tribunal had ignored the statutory conditions. The reference was decided against the department.
“no specific defect, discrepancy or falsity had been identified”
05 / ANALYSIS
Practical Relevance
Corporate taxpayers should preserve contemporaneous records for doubtful or bad debts, asset ownership, business use and withholding-tax adjustments, and respond to precisely identified assessment objections.
Tax authorities retain the power to seek information within section 122(5A), but a demand should be traceable to an identified error prejudicial to revenue, not a speculative verification exercise.